GAAP, but it is perfectly acceptable for internal reporting purposes and may be done using activity-based costing. This treatment is not in compliance with U.S. However, many organizations may assign commission costs to specific products for internal decision-making purposes. How might ABC be used to help companies in areas other than external reporting?Īnswer: Commissions paid to sales people for the sale of specific products (often called selling, general, and administrative) are included as an operating expense in financial reports prepared for external users as required by U.S. However, organizations often use ABC for purposes that go beyond allocating costs solely for external reporting.

Throughout this chapter, we have illustrated how ABC is used to allocate manufacturing overhead costs. Companies that use direct labor hours, machine hours, activity-based costing, or some other method to allocate overhead costs to products are likely to be in compliance with U.S. The choice of an allocation method is not critical to this process. Generally Accepted Accounting Principles require the allocation of all manufacturing costs to products for inventory costing purposes. External Reporting and Internal Decision Making

Activity based costing definition